Fonterra Co-operative Group Ltd has provided its FY25 Q1 business update.
The Co-op has made significant progress on its shift in strategic direction while maintaining its focus on performance.
“During the first quarter of the year, we released our revised strategy, which sees us focusing on our high-performing Ingredients and food service businesses to grow returns for farmer shareholders and unit holders,” said Fonterra CEO Miles Hurrell.
“We’ve announced investments to support this direction, including around NZD 75 million to increase production capacity for high-value protein ingredients at our Studholme manufacturing site, with site works now underway.”
Hurrel added that to support ongoing growth in its thriving food service business, it announced an investment of around NZD 150 million in a new UHT cream plant at Edendale, creating 70 new roles in Southland.
Fonterra launched a new food service product, Anchor Easy Bakery UHT Cream, targeting China’s mid-tier market. It also strengthened its supply chain network, with around NZD 150 million allocated to build a new cool store at our Whareroa site that can store 26,000 tonnes of cheese.
“These strategic investments underpin our future growth, and I’m pleased our balance sheet strength enables us to invest in our business.”
Fonterra has also progressed in its work to divest its global consumer business and integrated businesses, Fonterra Oceania and Sri Lanka.
“Last month, we confirmed we are pursuing a divestment for these businesses. This work is underway, and we will share more information as it progresses. Our priority is maintaining momentum in our financial performance while the divestment process is underway.”
Fonterra's FY25 Q1 profit after tax was NZD 263 million, equivalent to earnings per share of 16 cents. This has been a strong start to the year, especially considering the higher milk cost and narrower price relativities compared to last year.
While these factors have impacted Fonterra’s gross margins, this has been partially offset by an improved product mix, with a greater allocation of milk to higher-value products in its food service and consumer channels.
“We ended FY24 with well-managed inventory levels, meaning we started this year with lower levels than the year prior. As a result, we have lower sales volumes in our Ingredients channel compared to last year.”
The continued narrowing of price relativities in New Zealand also impacted the ingredients channel. The realignment of the Australian milk price with global commodity prices has partially offset this.
While the higher cost of milk has impacted food service and consumer gross margins relative to Q1 last year, Hurrel was pleased to see that margins have improved in the co-op’s global markets since the end of last financial year.
“Operating expenses for the first quarter of FY25 were in line with expectations as we continue to invest in core IT and digital infrastructure and transformation initiatives.”
